What are the cons of student loans?
Con: Student Loans Can Penalize You for Late Payments
More debt and less support have undeniably led to long-term debt burden and severe financial consequences. Although more students of color are attending college and pursuing the “American Dream,” student debt has delayed them from purchasing homes, starting businesses, and building generational wealth.
Most financial aid does not cover all school-related costs. Scholarships, grants, and work-study programs can be highly competitive. You may have to maintain certain standards to meet eligibility requirements during each semester. There's less flexibility on how you can spend funds.
In reality, they can be both. Good student loan debt could deliver a college degree to help you climb the career ladder. Bad student loan debt can leave you ill-equipped for repayment, harming your finances for years to come.
- Pro: Student Loans Can Fund Your Dream School. ...
- Con: Student Loans Create Post-College Debt. ...
- Pro: Student Loans Help You Enjoy a Better College Experience. ...
- Con: Student Loan Debt Can Get in the Way of Lifestyle Goals. ...
- Pro: Student Loans Can Help You Build Credit.
Student loan balances can have a significant impact on the economy because they prevent borrowers from moving forward with other financial plans such as buying a home or a car. Student loan debt hinders spending by limiting the amount of free cash in consumers' pockets.
Cancellation would promote college affordability, access, and completion. Student debt is not an individual burden but one that strains entire families. Many borrowers take on student loans while also caring for their parents.
Approximately 13% of all Americans had federal student loan debt in 2021. In 2023, 9.9 million borrowers have between $20,000-$40,000 of student loan debt. A larger percentage of female undergraduate students received federal loans than male undergraduates between 1999 and 2020.
Pros and Cons of Student Loans | |
---|---|
Pros | Cons |
Accessible to college students with no or limited credit histories | Default can lead to very serious consequences |
Lower interest rates than other financing options | They may not be enough to cover all of your expenses |
- No credit history needed.
- No co-signer needed.
- Fixed interest rates.
- Lower interest rates than private loans.
- Interest accrual may begin after college.
- Forbearance and deferment options.
- A repayment grace period.
- Income-driven repayment options.
What are the benefits of a student loan?
Student loans often have lower interest rates than private loans. Fixed interest rates prevent the terms of a loan from changing over time. Many student loans do not require repayment until after graduation, and they have additional options for deferment or loan forgiveness, when applicable.
'It's Not Really a Loan Anymore'
This unsung crisis is about to get much worse. In August 2022, the White House announced the federal government would forgive up to $20,000 in federal student loan debt per borrower—a whopping sum estimated to cost over $500 billion over the next decade.
Credit History – When entering college, most students have little to no credit history. That means the lender could be unsure of their ability to repay the loan since students don't typically have a history of paying any loans. This can lead to a higher interest rate.
If your student loan payments seem too high for your income level, you might be able to switch to an income-driven repayment plan. This bases your payment amount on your income and family size. Find out how to apply for an income-driven repayment plan to lower your monthly payments.
The Cons of Private Student Loans
Most private student loans do not offer income-driven repayment plans. Private student loans do not qualify for teacher loan forgiveness or public service loan forgiveness. Private student loans have limited options for financial relief when a borrower experiences financial difficulty.
How much student debt is there? Student debt has more than doubled over the last two decades. As of September 2023, forty-three million U.S. borrowers collectively owed more than $1.6 trillion in federal student loans.
What are the disadvantages of work-study? Limited hours, relatively low pay and a lack of available positions at some schools are some disadvantages of work-study. You must also reapply for work-study each year to reassess your eligibility.
Additionally, the cancelation of these loans is fundamentally unfair. It will occur at the expense of Americans who have worked hard, repaid their debts or chosen not to go to college at all. In a country that has always rewarded hard work and personal responsibility, this move is, quite simply, unprecedented.
Student loan debt in the United States totals $1.727 trillion; 2023 saw the first-ever annual decline in student loan debt. The outstanding federal loan balance is $1.602 trillion and accounts for 92.8% of all student loan debt.
If the debt forgiveness program is permitted to move forward, at a time when consumer spending already is high, it could lead to more inflation, Jones said. “We certainly don't have a consumer spending problem right now,” he said. “Just last month, we saw some of the highest consumer spending numbers in two years.
How do student loans hurt low income students?
Student loans burden many young workers with debt at a time when their lifetime earnings are at their lowest—early in their careers—and they have the least capacity to pay them off. Student debt is likely to elevate interest rates on other debts, which consequently raises the cost of consumption for borrowers.
Signs of trouble with student borrowing began to appear by the late 1980s. In 1986, parents and students had incurred nearly $10 billion in federal student loans – then considered an outrageous amount.
Having a student loan will affect your credit score. Your student loan amount and payment history are a part of your credit report. Your credit reports—which impact your credit score—will contain information about your student loans, including: Amount that you owe on your loans.
Your grades do affect your financial aid and federal student loans. If your cumulative GPA dips below a 2.0, you will no longer be considered to be in good academic standing.
Americans own $1.77 trillion in federal and private student loan debt as of the second quarter of 2023. That's up 1.25% from the second quarter of 2022. $128.77 billion of that total through March 31, 2023, is private student loan debt.
References
- https://www.appily.com/guidance/articles/paying-for-college/pros-and-cons-of-private-student-loans
- https://www.credible.com/refinance-student-loans/pay-off-200k
- https://www.investopedia.com/student-debt-affect-economy-8550501
- https://www.axios.com/2023/06/30/student-debt-age-gender
- https://www.fool.com/research/student-loan-debt-statistics/
- https://www.sofi.com/learn/content/tips-to-pay-off-mortgage-in-5-years/
- https://www.investopedia.com/student-loan-debt-too-much-8576649
- https://www.ramseysolutions.com/debt/what-happens-if-you-dont-pay-student-loans
- https://www.savingforcollege.com/article/how-much-student-loan-debt-is-too-much
- https://www.credible.com/refinance-student-loans/i-have-100k-in-loans-student-loan-consolidation
- https://www.forbes.com/advisor/student-loans/how-much-is-too-much-student-debt/
- https://www.investopedia.com/articles/personal-finance/022416/worst-things-can-happen-if-you-dont-pay-your-student-loans.asp
- https://wallethub.com/answers/cc/how-long-to-pay-off-30000-credit-card-debt-1000423-2140858502/
- https://en.wikipedia.org/wiki/Sallie_Mae
- https://www.tateesq.com/learn/when-do-student-loans-go-away
- https://www.bankrate.com/loans/student-loans/debt-settlement-on-student-loan-debt/
- https://www.sofi.com/learn/content/financial-aid-vs-student-loans/
- https://www.tateesq.com/learn/can-inheritance-garnished-student-loans
- https://www.onlinecolleges.net/student-debt-in-the-u-s-part-2-a-brief-history-of-student-debt-in-the-united-states/
- https://www.consumerfinance.gov/paying-for-college/student-loan-forgiveness/
- https://www.cfr.org/backgrounder/us-student-loan-debt-trends-economic-impact
- https://www.bestcolleges.com/research/how-long-to-pay-off-student-loans/
- https://www.lendingtree.com/student/why-did-my-student-loan-payment-go-up/
- https://www.lendingtree.com/student/pay-off-200k-student-loans/
- https://www.bankrate.com/loans/student-loans/current-interest-rates/
- https://www.lendingtree.com/student/how-to-pay-off-30k-student-loans/
- https://www.1edcu.org/pros-and-cons-of-student-loans/
- https://www.whitehouse.gov/cea/written-materials/2024/04/08/the-economics-of-administration-action-on-student-debt/
- https://wallethub.com/answers/sl/monthly-payment-on-150000-student-loan-1000451-2140765203/
- https://studentaid.gov/articles/pay-off-student-loans-faster/
- https://www.nbclosangeles.com/news/california-news/student-loan-debt-california/2970933/
- https://www.wusa9.com/article/news/verify/verify-how-many-people-federal-student-loan-debt/65-ec14eb40-1aa2-46b9-98d7-d30e8bb4a690
- https://www.bestcolleges.com/research/average-student-loan-payment/
- https://www.isac.org/students/after-college/documents/Default_FAQs_College.pdf
- https://wallethub.com/answers/sl/monthly-payment-on-100000-student-loan-1000451-2140765188/
- https://dfpi.ca.gov/2023/02/13/student-loan-debt-a-disproportionate-burden-on-black-and-latino-borrowers/
- https://www.tateesq.com/learn/what-happens-never-pay-student-loans
- https://www.bankrate.com/loans/student-loans/pay-more-than-minimum-payment/
- https://www.foxbusiness.com/fox-money/student-loan-refinance/100k-in-student-loans
- https://www.collegedata.com/resources/pay-your-way/3-types-of-college-loans
- https://www.credible.com/refinance-student-loans/average-student-debt
- https://www.nerdwallet.com/article/loans/student-loans/who-owns-my-student-loans
- https://cole.house.gov/media-center/weekly-columns/the-cost-of-canceling-student-debt
- https://protectborrowers.org/incarceration/
- https://www.foxbusiness.com/personal-finance/how-pay-off-large-student-loans
- https://educationdata.org/average-time-to-repay-student-loans
- https://www.forbes.com/advisor/education/student-resources/is-work-study-worth-it/
- https://www.cnn.com/2023/09/24/politics/what-happens-dont-pay-student-loans/index.html
- https://www.savingforcollege.com/article/how-long-does-it-take-to-repay-a-student-loan
- https://thebestschools.org/resources/college-finances/about-student-loans/
- https://www.lendingtree.com/student/student-loans-good-bad-debt/
- https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
- https://www.gao.gov/blog/student-loan-payment-pause-ends-income-driven-repayment-plans-may-help-borrowers
- https://money.usnews.com/loans/student-loans/articles/average-student-loan-payment
- https://www.bankrate.com/loans/student-loans/student-loans-for-living-expenses/
- https://www.nerdwallet.com/article/loans/student-loans/student-loan-debt
- https://www.fool.com/student-loans/2023/09/02/2-reasons-student-loans-are-so-difficult-to-pay-of/
- https://www.investopedia.com/student-loans-good-debt-8559798
- https://educationdata.org/average-student-loan-debt
- https://www.bankrate.com/loans/student-loans/never-pay-student-loans/
- https://www.beckersasc.com/asc-news/the-14-medical-careers-with-the-highest-student-loan-debt.html
- https://www.credible.com/refinance-student-loans/pay-off-300k
- https://www.sofi.com/learn/content/grades-and-financial-aid/
- https://wallethub.com/student-loan-calculator
- https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-default-on-a-federal-student-loan-en-663/
- https://www.lendingtree.com/student/student-loan-debt-statistics/
- https://www.affordablecollegesonline.org/college-resource-center/unfair-college-loan-practices/
- https://finance.yahoo.com/news/monthly-payment-20-000-student-112728748.html
- https://money.com/consequences-not-paying-student-loans/
- https://www.bankrate.com/loans/student-loans/repay-college-loans-fast/
- https://www.ed.gov/news/press-releases/biden-harris-administration-approves-12-billion-loan-forgiveness-over-150000-save-plan-borrowers
- https://smartasset.com/student-loans/average-student-loan-interest-rate
- https://wallethub.com/answers/cc/how-to-pay-off-30000-in-credit-card-debt-1000294-2140754720/
- https://www.freedomtoprosper.org/wp-content/uploads/2018/05/FTP-One-Pager-Final.pdf
- https://www.forbes.com/advisor/student-loans/100k-student-loan-monthly-payment/
- https://taxprof.typepad.com/taxprof_blog/2018/05/wsj-usc-alum-is-one-of-101-grads-with-1-million-in-student-loans.html
- https://www.nerdwallet.com/article/loans/student-loans/pay-off-student-loans-fast
- https://www.tateesq.com/learn/defaulted-student-loans-not-on-credit-report
- https://www.lendingtree.com/student/how-much-student-debt-too-much/
- https://www.consumerfinance.gov/ask-cfpb/do-student-loans-affect-my-credit-score-en-581/
- https://www.experian.com/blogs/ask-experian/pros-and-cons-of-student-loans/
- https://studentaid.gov/announcements-events/default-fresh-start
- https://www.sofi.com/learn/content/student-loan-interest-rates-guide/
- https://finance.yahoo.com/news/why-m-not-paying-student-231400470.html
- https://files.eric.ed.gov/fulltext/ED610484.pdf
- https://www.conahec.org/news/case-against-student-loan-cancellation
- https://www.workrisenetwork.org/working-knowledge/impact-student-debt-low-wage-workforce
- https://www.nerdwallet.com/article/loans/student-loans/pay-off-100000-student-loans
- https://studentaid.gov/manage-loans/repayment/plans/standard
- https://www.uc.edu/news/articles/2023/03/how-student-loan-forgiveness-could-affect-the-economy.html
- https://reason.com/2024/02/06/the-real-student-loan-crisis/
- https://www.forbes.com/advisor/student-loans/pay-off-80k/
- https://www.bestcolleges.com/news/analysis/what-caused-the-student-debt-crisis/
- https://www.credible.com/blog/refinance-student-loans/how-to-pay-off-large-student-loans/
- https://www.bestcolleges.com/research/how-many-people-have-student-loans/
- https://educationdata.org/student-loan-debt-statistics
- https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844
- https://www.aplu.org/our-work/4-policy-and-advocacy/publicuvalues/student-debt/
- https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized
- https://www.ed.gov/news/press-releases/biden-harris-administration-announces-additional-74-billion-approved-student-debt-relief-277000-borrowers
- https://www.usa.gov/student-loan-problems
- https://www.nerdwallet.com/article/loans/student-loans/how-can-i-get-rid-of-student-loans-without-paying
- https://www.whitehouse.gov/briefing-room/statements-releases/2024/04/08/president-joe-biden-outlines-new-plans-to-deliver-student-debt-relief-to-over-30-million-americans-under-the-biden-harris-administration/
- https://www.savingforcollege.com/article/how-to-pay-for-college-without-student-loan-debt
- https://www.investopedia.com/articles/personal-finance/100515/10-ways-student-debt-can-destroy-your-life.asp
- https://www.usnews.com/education/best-colleges/paying-for-college/slideshows/10-advantages-of-federal-student-loans
- https://studentaid.gov/manage-loans/repayment/repaying-101
- https://www.cnn.com/cnn-underscored/money/average-student-loan-debt